FHA home loans are a great option if you do not have a big down payment. The Federal Housing Administration (FHA) helps borrowers who would otherwise be foreclosed from the housing market by allowing lower-paying and more liberal underwriting guidelines. The Federal Housing Administration insures the loans of the FHA, they do not lend money directly to the borrowers.
The first step in applying for an FHA home loan is to find a lender that offers FHA loan. Not all mortgage companies offer FHA loan to their clients. To be able to offer FHA loan, the lender must apply and be allowed to offer FHA loan to the public.
Once you find a lender who handles FHA mortgages, you will be asked to complete a loan application and send the necessary documentation to another lender you pre-qualify for a loan. These elements may include:
- 2-year tax returns and W-2
- 2 current pay slips
- 3 months bank statements
- Name, address and phone number of your owner (if applicable)
- Letter of donation (if you receive a gift from a family member)
Depending on each individual situation, there may be other necessary documents. The lender should also review the loan programs available to you and decide together which program is best for your situation. At this point, the lender must go over the information you have sent, pull out your credit report and pre-qualify for a purchase price that you can afford. Now you have been pre-qualified.
There is a difference between being pre-qualified and pre-approved. Usually, once you have been pre-qualified, the lender will move on to the next step and pre-approved you. For this process, the lender will have the information you submitted and entered into the automated underwriting system known as the System Desktop Underwriters (UD).
The lender will give you a pre-approval letter that you will use when you make your offer. You must hand in the letter with your offer to let the seller know that you have been pre-approved and that you have your financing in place.
If you would like to be pre-approved for an FHA home loan to buy a home in California, please visit fha-info.com/ or call me at (800) 732-0561.
How to qualify for the best mortgage rate
When it comes to qualifying for the best mortgage rate, you must understand how lenders determine the interest rate they will charge each individual. At the same time, you go to your local bank and lend them. They knew you and determined the interest rate based on this relationship, as well as information on local loans. They would hold that mortgage until you paid it. Today, this is very unlikely to happen. Even if you borrow money from a local bank, they do not use local data to determine mortgage rates. They look at what lenders usually charge for your type of loan that day. For example, if you want a fixed rate of 30 years, they look at the base rate for this type of loan.
Each individual comes to the loan table with a different situation. Mortgage lenders will review your particular situation and adjust this base rate accordingly. If you have good credit, it counts in your favor with a lower interest rate. If you have imperfections in your credit report, you will pay in a higher interest rate. If you do not have a large down payment for the home, they will lend a higher amount of home value. This represents a higher risk for them and a higher interest rate for you. Lenders also look at your current work and salary levels. All of these factors help determine the best mortgage rate you can get.
So, after all the calculations, the lender will present you with a mortgage rate. You can see it is higher than the advertised rates you saw in the newspaper. What can you do? The first question is for the lender. Why do they offer them the highest rate? The next question is which lender you can talk to. Many people think that they will get the same mortgage rate with each lender. And that is far from the truth. When considering a mortgage, look at other lenders and see if this is the best mortgage rate for which you qualify.
The best mortgage rate you can get is what a lender will give you based on your situation. The lowest rates are awarded to those with perfect credit, a large down payment and a matching income. But, you can get a lower rate if you shop before signing up on the dotted line.
Save yourself time and money with our 5 simple questions to understand mortgage basics. When is the best time to apply for a fixed rate mortgage? What are variable rate mortgages based on? Should you opt for a mortgage of 15 or 30 years? What is the advantage of FHA loans? And should you use a broker or a bank? We answer these questions and other questions in a nutshell and they will be easy.